CZECH REPUBLIC - Moving to a fully-funded second pillar should be part of sustainable pension reforms in the Czech Republic, the International Monetary Fund (IMF) has argued.

"Pension reforms should make the public pension scheme sustainable over the long-term and promote the development of a complementary sound private pension system," the body claimed.

"Over the medium-term, consideration should be given to moving to a fully-funded second-pillar private pension scheme, and to prefunding additional reserves to finance future deficits of the PAYG scheme through upfront fiscal consolidation measures or any privatisation revenue."

In its latest evaluation of the financial situation of CEE households, an analyst at UniCredit pointed out that given "the absence of the pension reform with mandatory savings will make the Czech Republic the only country in the region in the years to come, where annual increments in assets in pension funds will not reach two-digit values."

However, Aegon, the youngest pension fund among the 10 providers in the voluntary second pillar, reported it has saw rapid growth in its business over the last year.

Assets have increased to over CZK2bn (€80m) from CZK1.5bn at the end of September 2009 and the fund now has more than 100,000 members up from 80,400 members.

Aegon noted it is mainly targeting young people so newcomers to the system made up the major part of its new clients.

"They are realising that the state pension will not go far enough to meet their needs and that the second pillar is a part of the mosaic to finance their pension," said a spokesman for Aegon.

The IMF said would also like to see the domestic capital markets developed further, for example by introducing tax exemptions for contributions to voluntary third-pillar pension fund.

It also argued the government should move forward the planned step-by-step increase of the statutory retirement age to reach 65 by 2020.

The Czech Republic has one of the lowest retirement ages in the EU with a retirement age of 62 for men and 60 for women.

The government is planning to increase the age limit by two months every year for men and four months for women to reach 65 for both by 2031.

The finance ministry has also set up a team of experts to discuss a possible pension reform, which will present its results in May.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

 

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